British Bank CEOs Fail to Grasp the New Reality

There was little sign of humility or self-awareness this week as the big beasts of British banking were hauled before a parliamentary select committee to explain their part in the banking crisis. Accusations of arrogance and a refusal to take personal responsibility were refuted by the former chiefs of HBOS and the Royal Bank of Scotland, the two banks now largely owned by the government. And they rejected all claims that they had behaved recklessly.

The grilling by politicians revealed some surprising facts. None of the four chiefs, it transpired, had any formal banking qualifications. Sir Tom McKillop, former chairman of RBS, admitted that he didn’t actually understand the complex financial instruments sold between banks.

Yet accountability was apparently not in their lexicon. HBOS had not got things ‘very wrong’, according to Lord Stevenson, former chairman. Andy Hornby, former CEO of the bank, said he was ‘very sorry for the turn of events’ but was ‘not personally culpable’ for the crisis. And Sir Fred Godwin, former CEO of RBS, which is set to lose £28bn this year, insisted: “I believe I have led the bank in a responsible fashion”.

It has been very interesting to see these CEOs in the cold light of day, outside their organisations and without the protection of their entourages. I have heard many senior bankers talk about these remote, powerful figures in hushed, almost reverential tones. With limited exposure to their bosses, they remarked on their CEO’s authority, talent and experience, usually in glowing terms. One or two CEOS even developed a cult-like following. It must be even more interesting for these managers to see their bosses outside their halls of power, without the trappings of power or position. To me they looked deflated, defensive and anxious.

As anyone who has worked in investment banking will know, the culture is built on money, growth, and power. Money is the great motivator, growth the mantra, and power the ultimate reward. Everyone knows the rules and the consequences, good and bad. The financial rewards are high, so people accept a tough culture. Growth often means taking risks, so leaders push the boundaries in pursuit of profits and growth. Regulation, risk management and best practice in HR are important and recognized, but they must not constrain people or hinder progress.

A client once told me that one investment bank he worked for in the City of London was like entering the Wild West. It was growing so fast that no-one knew what was going on. He was given a level rather than a job title and a sales target and simply told to get on with it. He had to find his own team, create a new business, challenge other teams and deliver the profits. He achieved all this and was then promptly fired – but not without his bonus.

It’s rare to get an insight into what really happens within the banks, so the memo by Paul Moore, former head of group regulatory risk at HBOS, given in evidence at the parliamentary committees this week, was illuminating. Mr Moore had raised concerns as far back as 2004 about the culture of HBOS and was dismissed in 2005, although he sought and won damages for unfair dismissal.

Among the many damning criticisms of HBOS, Mr Moore describes a “cultural indisposition to challenge within certain parts of the firm”, “threatening behaviours by executives” and “unacceptable behaviours” as he tried to do his job and raise concerns. He was even told indirectly that senior managers believed that he had a “death wish”.

He lists a number of recommendations for change, two of which caught my eye.

Independent bodies should test the cultural environment of organisations they are supervising, for example by staff and customer surveys. As he says: “There is no doubt that you can have the best governance processes in the world but if they are carried out in a culture of greed, unethical behaviour and indisposition to challenge, they will fail.”

Mandatory ethics training for all senior managers and a system of monitoring the ethical considerations of key policy and strategy decisions within the supervised firms.

What do you think about bankers and their predicament? Do you have any suggestions for how they might change? Do you agree that independent scrutiny of culture and ethics training would help change dysfunctional organizational cultures?

Gill Corkindale is an executive coach and writer based in London, focusing on global management and leadership. She was formerly management editor of the Financial Times.

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